How Zenith Helped James Secure His First Home with a Family Guarantor Loan

The Client’s Situation

James, a 28-year-old marketing professional, approached Zenith seeking assistance to purchase his first home. He had found an ideal property priced at $600,000 but lacked the savings for a deposit. James’s parents were willing to help by using the equity in their own home as security for a family guarantor loan.

The Challenge

The main challenges in this case were:

• James had no deposit saved
• He wanted to avoid paying Lenders Mortgage Insurance (LMI)
• The need to structure the loan to protect both James and his parents

Our Approach

We recognised that a family guarantor loan could be the ideal solution for James. We approached the situation by:

1. Assessing James’s Financial Situation: We reviewed James’s income, expenses, and credit history to ensure he could service the loan repayments.
2. Evaluating the Parents’ Property: We assessed the equity available in James’s parents’ home to determine the guarantee amount.
3. Lender Selection: We identified lenders offering family guarantor loans with favourable terms.
4. Loan Structure Planning: We designed a loan structure that would allow for the eventual release of the guarantee.

The Process

Our process involved several key steps:

1. Client Education: We thoroughly explained to James and his parents how the family guarantor loan works, including:
   • The parents’ liability is limited to the guaranteed portion of the loan
   • The importance of James making all repayments to protect his parents’ financial position
   • The process for releasing the guarantee once sufficient equity is built up
2. Loan Application: We prepared a comprehensive loan application, highlighting:
   • James’s strong income and employment stability
   • James’s strong credit rating 
   • The parents’ significant equity position in their property
3. Guarantee Structure: We worked with the chosen lender to structure the loan as follows:
   • An 80% loan secured against the purchased property
   • A 20% loan secured by the parents’ guarantee
4. Legal Advice: We ensured both James and his parents received independent legal advice regarding the guarantor arrangement.

The Outcome

After a focused process, we successfully:

• Secured a $600,000 family guarantor loan for James
• No stamp duty was payable as a First Home Buyer
• Structured the loan with no deposit required from James
• Avoided the need for Lenders Mortgage Insurance
• Ensured James’s parents’ liability was limited to 20% of the loan amount
• Implemented a plan to release the guarantee once James builds 20% equity in the property

James was able to purchase his first home without having to save for years for a deposit. His parents were able to help him enter the property market sooner while limiting their own risk.

Conclusion

This case study demonstrates how family guarantor loans can be an effective tool for first-home buyers to enter the property market sooner. At Zenith, we understand the intricacies of these loans and work to ensure both the borrower and guarantor are protected. If you’re considering a family guarantor loan for your first home purchase, contact us to explore your options.